Most will not have heard of it until recently, but the ruling on the discount rate for injured people has been long-awaited amongst those in the legal sector, writes Scott Whyte.

The discount rate, which is set by the Lord Chancellor in England and the Lord Advocate in Scotland, is a sum applied to cases where people have been awarded lump sum compensation for future losses (e.g. loss of earnings) after an accident. The figure has been set at 2.5 per cent for over 15 years but has now been changed to minus 0.75 per cent.

Insurers have cried foul and imitated surprise that the rate has been reduced, but in reality change has been on the agenda for a number of years. The discount rate had not been reviewed since 2001 and in the 16 years since then the financial crash of 2008 and a tumultuous economy have meant that the rate of return on low or no-risk investment has not matched the discount rate applied. For almost a decade injured people have been out-of-pocket, hence the reason pressure has been mounting on the Government to change the rate.

It might be a bitter pill to swallow for insurers but the new discount rate reflects the economic realities faced by injured people. The outdated rate left injured people with the choice of taking a financial hit or making high risk investments. And there is nothing to suggest that the rate could not be increased as and when interest rates rise.

Insurers have been quick to signal that this will lead to increased insurance premiums and issued profit warnings, but let’s focus on the human beings who receive compensation when their life is irrevocably damaged through no fault of their own. The discount rate has allowed insurers to make millions in extra profits throughout the past ten years at the expense of injured people. The Lord Chancellor’s admission that minus 0.75 per cent was “the only legally acceptable rate” she could set indicates as much.

No one asks for an accident, and when they are unfortunate enough to be involved in one, they need a fair settlement to help them get by. In a climate where personal injury victims have had their rights and protections challenged, whether it be through the court reforms, creation of inequality of arms or the whiplash debate south of the Border, this marks a rare win.